Down the River and Sharing Unappropriated Gaming Revenue: a Case Analysis Of City of Lawrenceburg v.. Franklin County

The Indiana Court of Appeals recently heard a case between Franklin County (Franklin) and the City of Lawrenceburg (Lawrenceburg). ¹ Franklin alleged Lawrenceburg breached a contract when Lawrenceburg failed to make a $500,000 payment sharing its gaming tax revenue from a local riverboat casino. ² After a summary judgment for Franklin, Lawrenceburg appealed on the grounds the Agreement was void by statute. ³ The Court of Appeals held the Agreement was void per Ind. Code § 36-4-8-12. ⁴

In 2006, the Indiana Gaming Commission and General Assembly looked into the distribution of Lawrenceburg's riverboat gaming tax revenue and whether they should be allowed to retain their tax revenue locally. ⁵ Lawrenceburg entered into the Agreement with Franklin, a neighboring county, to promote economic development for Franklin and so Lawrenceburg could retain their tax revenue. ⁶ Lawrenceburg agreed to pay Franklin $500,000 of its riverboat tax revenue annually. ⁷ The Agreement would end if Lawrenceburg failed to receive a steady flow of tax revenue. ⁸ Lawrenceburg made these payments from 2006 until 2014. ⁹ Lawrenceburg projected a 30% loss in gaming tax revenue for 2014 due to increased competition from Ohio casinos and ceased payments. ¹⁰

In 2015, Franklin filed a lawsuit against Lawrenceburg for breach of contract. ¹¹ Franklin filed a motion for summary judgment alleging the Agreement constituted a valid and enforceable contract, only to be terminated if Lawrenceburg's gaming tax revenue suffered total failure. ¹² Lawrenceburg filed a cross-motion alleging the Agreement was void per Indiana Code § 36-4-8-12 because it obligated Lawrenceburg to pay out money that had not been appropriated. ¹³ The trial court entered summary judgment against Lawrenceburg and held: (1) Lawrenceburg's argument the Agreement was void by statute was without merit because Indiana Code § 4-33-13-6 allowed for sharing gaming tax revenue, and (2) Lawrenceburg's failure to raise the issue of void by statute in its answer waived this defense. ¹⁴

The Court of Appeals held the Agreement was void by statute. ¹⁵ The statute in question prohibits municipalities from obligating themselves to pay any money which has not been appropriated. ¹⁶ While the trial court found Indiana Code § 4-33-13-6 acted as an exception to this statute, the Court of Appeals held both statutes work in tandem and if appropriation did not take place per Indiana Code § 36-4-8-12, the gaming tax revenue could not be shared per Indiana Code § 4-33-13-6. ¹⁷ The Court of Appeals justified their conclusion on three main grounds. ¹⁸ First, requiring municipalities to appropriate money needed for entering contracts allows for transparency and legislative oversight. ¹⁹ Second, appropriation precludes the 2006 Lawrenceburg government from obligating future governments in perpetuity. ²⁰ Finally, without the appropriation requirement, Lawrenceburg could obligate itself to share revenue it had not yet received. ²¹

In order for the Agreement to be enforceable, Lawrenceburg needed to appropriate the $500,000 payments for a set term at the time the Agreement was created or the Agreement would be void by statute. ²² This precedent requires greater governmental responsibility in how gaming tax revenue is dispersed and requires municipalities to appropriate money ahead of forming a contract. However, it is unfortunate Lawrenceburg allowed $4 million of its gaming tax revenue to flow out of the city under an illegal contract.